Hedge funds are often thought of as the “smart money” on Wall Street. At least based on their very high fees (as much as 2% of assets and 20% of profits) investors would hope that they were the smartest guys in the room.
However, often big funds can get into trouble, and create incredible opportunities for regular investors to profit from margin call-induced forced selling.
That’s what happened in mid-March 2020, and it’s what’s happening now.
Now it seems reasonable to assume that quality companies can’t fall by crazy amounts as we saw in the panic days of the early pandemic.
However, the nature of forced selling is that it’s inherently non-rational.
- if a big fund gets a margin call or has to liquidate to meet redemptions, then fire sale prices can be the result
Even in a thriving economy, the best in almost 40 years, individual companies can fall off a cliff.
- Viacom is down 53% in a matter of days
- one of the fastest bubble deflations in market history
So let’s take a look at what in particular is causing one of the fastest stock market crashes (for VIAC), as well as a handful of other popular names such as Alibaba.